FANNIE MAE, FREDDIE MAC AND CORPORATE WELFARE
Fannie Mae and Freddie Mac were created by Congress to "provide funding to mortgage lenders by purchasing their mortgages and then holding them or selling them to investors in the form of securities that they guarantee." These companies are also known as Government Sponsored Enterprises, or GSE’s.
Federal Reserve Board Chairman Alan Greenspan noted, in a letter to the Chairman of the House Financial Services Subcommittee on Capital Markets, Securities, and Government Sponsored Enterprises dated May 19, 2000, "(The GSE’s) were each chartered with the purpose of smoothing out regional imbalances in mortgage supply and integrating regional mortgage markets into the national capital markets. Much to their credit, they succeeded in accomplishing this goal many years ago."
Chairman Greenspan also stated that:
"The history of financial involvement in increasing home ownership is one of taking risks - of designing new financial instruments and financial products to make financial resources available so that more people can realize the goal of home ownership. Taking prudent risks in lending so that others may attain an objective is the essential role of a financial intermediary..."
We have long been concerned with the GSE’s ability to act in the public interest. We have been cited in numerous newspaper articles, and made a statement on May 16, 1996 at the White House Conference on Corporate Citizenship. This concern has increased given the level of arrogance we see at these institutions. For example, in response to a mildly critical Congressionally mandated study, one GSE spokesman said:
"This is a case of policy wonks piling their own prejudices on top of faulty analysis, and if these digit heads could figure out a better way of delivering credit to millions of families with the use of private capital while paying the government billions of dollars in federal taxes then they can get a real job in Washington."
Mr. David Jeffers, Spokesman for Fannie Mae.
We also note that these entities have become increasingly complex. Fannie Mae recently announced it had “made an error of more than $1 billion in its last quarterly earnings release.”
Freddie Mac announced that it, too, had erroneously reported past earnings: "Though it originally reported a profit of $837 million for the first quarter of 2001, Freddie actually lost $111 million during that period. For five of eight fiscal quarters in 2001 and 2002, Freddie (Mac) overstated income."
In essence, they lied.
Top executives at these organizations had an incentive to lie because "bonuses at Freddie Mac and Fannie Mae were based, in part, on financial performance."
These incidents make real our concerns. (For more information, see links below. Also see: http://www.washingtonpost.com/wp-dyn/business/specials/freddiemac/)
Additional information:
Risks
to taxpayers
Fannie Mae
(Federal National Mortgage Corp.) & Freddie Mac (Federal Home Loan
Mortgage Corp.)
The Homeownership
Question
Questions
concerning homeownership
Suggested
changes to enhance homeownership
Testimony
before the House Financial Services Subcommittee on Capital Markets,
Insurance and Government Sponsored Enterprises
For further information
Other questions
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